Wednesday, February 27, 2019 (10:00 AM) -- Committee on Financial Services Hearing: “Monetary Policy and the State of the Economy”


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Chairman of the Board of Governors of the Federal Reserve System, Jerome Powell, will testify on the conduct of monetary policy and the state of the economy. He will be the only witness.

Purpose
The Federal Reserve Act (FRA) directs the Chairman of the Board of Governors of the Federal Reserve System (Board) to testify before the House Committee on Financial Services and the Senate Committee on Banking twice a year, in February and July, on how the Board handles monetary policy and its observations on economic developments.1 Each appearance requires the Board to supply the Committees with a written report known as the Monetary Policy Report.2

“Humphrey-Hawkins Act”
As a response to the Great Depression, the Employment Act of 1946 made maximum employment a formally recognized federal government policy “…under which there will be afforded useful employment for those able, willing, and seeking work, and to promote maximum employment, production, and purchasing power.”

In the 1970s, the United States experienced an unusual combination of high inflation and unemployment referred to as “stagflation.” The Federal Reserve Reform Act of 1977 amended the FRA to among other things pursue “…the goals of maximum employment, stable prices, and moderate long-term interest rates.”4 Because moderate long-term interest rates remain low only in a stable price environment, the goals are generally thought of as a dual monetary policy mandate of maximum employment and price stability.

Because of the economic situation, former Sen. Hubert Humphrey (D-MN) and former Rep. Augustus Hawkins (D-CA) judged that the Federal Reserve needed explicit policy instructions. Following the 1977 amendments, Congress passed the Full Employment and Balanced Growth Act of 1978, eponymously referred to as the “Humphrey-Hawkins Act,” amending the Employment Act of 1946 to achieve balanced growth through: control of production, maximum employment, price stability, balanced budget and balanced trade. It further stated explicit numeric unemployment and inflation goals. Additionally, to monitor economic development, the Act increased congressional oversight through the monetary policy reporting system...

Federal Reserve
The financial panic of 1907 was the impetus for the Federal Reserve Act of 1913, which created the Federal Reserve System—a central bank consisting of 12 regional Federal Reserve banks (Reserve Banks) headquartered in different U.S. geographic regions and the Board headquartered in Washington, D.C. The Federal Reserve system has several functions including conducting monetary policy, promoting financial stability, supervising and regulating financial institutions and fostering payments and settlements. Generally, the Board makes policy that the Reserve Banks implement and execute; however, monetary policy decisions are made by the Federal Open Market Committee (FOMC). The Federal Reserve is self-funded through income from the securities on its balance sheet and fees imposed on financial institutions. Excess income is remitted to the U.S. Treasury Department (Treasury) and is used to reduce the national debt.

Board of Governors
The Board consists of seven Governors of which there are a Chairman and two Vice Chairmen. The President nominates the Chairman, Vice Chairmen and Governors who are then confirmed by the Senate. The Chairman and Vice Chairmen serve four-year terms while Governors serve 14-year terms. Chairman Powell is the 16th Chairman of the Board and took office on February 5, 2018. Prior to becoming Chairman, he was nominated as a Governor in May 2012. Richard Clarida became Vice Chairman on September 17, 2018 and Randy Quarles became Vice Chairman of Supervision on October 13, 2017. Governor Lael Brainard was appointed on June 16, 2014 and Governor Michelle Bowman was appointed on November 26, 2018. There are currently two vacancies on the Board.

Federal Reserve Banks
Commercial banks that are a part of the Federal Reserve System are member banks of a Reserve Bank depending on what region the commercial bank is located. The member bank holds stock of its Reserve Bank, which pays a dividend, and along with this ownership it elects representation to its Reserve Bank’s board of directors.

Each Reserve Bank is led by a president and board of directors. There are nine directors divided into Class A, Class B and Class C directors. Class A directors represent commercial banks elected by Federal Reserve member banks within the Reserve Bank’s district...
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